Head company public trading trust entitled to s 23AJ exemption - Intoll Management

12 Dec 2012

The Full Federal Court (Edmonds, McKerracher and Jagot JJ) has upheld the taxpayer's appeal agains the Commissioner's objection decision, disallowing an objection against an amended assessment under which the Commissioner included in the assessable income of the trust fund known as “Intoll Trust (II)” (“the Trust”) an amount of $183,323,059, representing dividends received during the year of income from Macquarie Infrastructure (Luxembourg) SA and Macquarie Infrastructure (Toll Route) SA, companies incorporated in Luxembourg.

The taxpayer was the trustee of the Trust.

The Trust was a public trading trust and, as such, was the head company of a consolidated group pursuant to a choice made with effect from 1 July 2003. On this basis, the Trust's taxable income was to be worked out as if it were a company.

The taxpayer argued that s 23AJ ITAA 1936 applied to make the dividends non assessable, non exempt income. The Commissioner argued that s 23AJ could not apply because "the company", being the Trust, received the dividend in the capacity of a trustee.

The taxpayer also argued that it was entitled to the benefit of a public ruling, Taxation Determination TD 2008/25. The Commissioner disagreed, arguing that it did not apply to the taxpayer's position of head company.

In upholding the applicability of s 23AJ, the Full Court said, at paras 39-40:

"It is the Trust which (as head company) is assessed on having derived the dividends. The assessment is not issued to a beneficiary or some actual or intended trust estate of which the Trust is the trustee (even if the Trust as trustee were a meaningful, relevant concept)...The Trust does not receive the dividend as trustee, but for its own benefit as an assumed company, so as to be assessable upon it under s 44, subject to the operation of s 23AJ."

It concluded, at para 47:

"The Commissioner has assessed the Trust (as head company) on the basis that the Trust (as head company) derived, for its own benefit, and so was assessable upon, the dividend income. But for the purpose of denying the application of s 23AJ, the Commissioner contends that the Trust (as head company) did not receive the dividends from the Luxembourg companies for its own benefit, but rather as trustee. In our view, the first proposition is correct; it necessarily follows that the second is not and s 23AJ applies to the applicant’s receipts of the dividends from the Luxembourg companies."

In support of his arguments, the Commissioner sought to rely on statements in an Explanatory Memorandum. The Full Court held that in light of the clear words of the legislation, it was not permissable for the Commissioner so to do. In any event, the Full Court noted, the explanatory memorandum supported the taxpayer's case when it said, of s 23AJ: "The new measures apply to a company in the capacity of a trustee of a corporate unit trust or public trading trust that is the head company of a consolidated group."

Although it was not strictly necessary to decide, the Full Court also expressed the view that there was nothing in the Taxation Determination that would deny its application to the facts of the present case, namely, where a trust is the head company of a consolidated group seeking the benefit of s 23AJ.